Evening Headlines
Bloomberg:
- JPMorgan(JPM) Loses $2 Billion in Chief Investment Office. JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon said the firm lost about $2 billion on synthetic credit securities after an “egregious’” failure in its chief investment office, which the bank says focuses on hedging. “This portfolio has proven to be riskier, more volatile and less effective as an economic hedge than the firm previously believed,” the New York-based company said today in a quarterly securities filing. JPMorgan declined 5.5 percent to $38.50 in extended trading at 5:55 p.m. in New York. The chief investment office has been transformed in recent years under Dimon into a unit that makes bigger and riskier speculative bets with the bank’s money, according to five former employees, Bloomberg News reported April 13. Some bets were so big that JPMorgan probably couldn’t unwind them without losing money or roiling financial markets, the former executives said.
- Spending Cuts Plunge Spanish Highways Into Darkness. Cars went barreling along the highway in darkness, ferrying families from Madrid to the beaches of Catalonia during the Easter holiday season, the black stalks of unlit streetlamps flicking past their windows. Truck drivers honked angrily as motorists switched on their full beams to pick out curves in the road, momentarily dazzling oncoming traffic. Motorists traveling along the main highway linking the Spanish capital to Seville and the rest of the south face similar challenges. “In some stretches it looks like they’ve been switching off the lights, in others they are missing the bulbs or the cables,” says Pascual Cabello, 32, who runs a fleet of eight trucks. “It’s only going to get worse,” he adds. The most draconian spending cuts on record are plunging Spain’s cities and highways into darkness as ministries and mayors struggle to pay for basic services. To appease European officials and bond investors, Prime Minister Mariano Rajoy is trying to pare the country’s deficit by 27 billion euros ($35 billion), an amount equivalent to almost a third of central government spending in 2011. At the same time, Rajoy is battling Spain’s second recession since 2009. Unemployment has edged up to 24 percent, pushing up social security payments and damping tax revenue.
- Germany Examines Bank Use of ECB Loans on Bubble Fear. German lenders’ use of cheap loans from the European Central Bank is under examination by the country’s top banking supervisor amid concerns the influx of funding may eventually create “a new bubble.” Banks that took “implausibly high” amounts have to explain how they plan to use the money, said Raimund Roeseler, head of banking supervision at the country’s financial regulator Bafin. The exercise is part of a strategy change focusing more on what banks plan for the future than looking at what they did in the past, he said.
- Spain Stakes Credibility on Fourth Bank Cleanup in Three Years. Spain will make a fourth attempt to convince investors its banking system is solid after failing to do so with three prior tries in as many years. “All the previous efforts have been announced with a drumroll and a big clash of cymbals but they weren’t credible in the end,” said Javier Diaz-Gimenez, an economics professor at the University of Navarra’s IESE business school in Madrid. “They must get it right this time.”
- Greece Strives for Government After Election Raises Euro Doubts. Greece's political leaders go into a fifth day of talks today to carve out a government with Evangelos Venizelos, the socialist Pasok leader, set to press counterparts on a proposal for a unity government that would avert a new election. Venizelos, who received the mandate to form a government yesterday, said there was a first "good omen" since the inconclusive May 6 election, after Democratic Left leader Fotis Kouvelis outlined a proposal designed to keep the country in the euro area. "Our views are very close," Venizelos said to reporters in Athens after meeting with Kouvelis. "I will continue the effort, preparing the ground for the phase of negotiation that will be coordinated by the president of the republic."
- Bundesbank’s Weidmann Hits Back at FT Report, Sueddeutsche Says. Bundesbank President Jens Weidmann hit back at a Financial Times report that the bank is prepared to accept higher inflation rates, the Sueddeutsche Zeitung said, citing an interview. Such reports are an “absurd discussion,” Weidmann is quoted as saying. Weidmann said that while German inflation may be higher than in the past, there is no danger as long as the European Central Bank keeps the euro-area average at just below 2 percent, according to Sueddeutsche.
- Weidmann Tells Bild Inflation Contained If ECB Sticks to Mandate. European Central Bank council member Jens Weidmann said if policy makers stick to the bank’s core principles, inflation will remain contained, Germany’s Bild newspaper reported, citing an interview. “The ECB council decides on monetary policy,” Weidmann, who also heads Germany’s Bundesbank, is quoted as saying. “I stand for monetary stability in the euro area. At the moment, it is decisive that the guardians of the currency don’t let their cart get hitched to the carriage of fiscal policy. If we hold to our principles, then there is no danger that inflation will get out of control.” Weidmann also said that Germany, which for many years enjoyed inflation below the euro-area average, may now see above-average inflation rates due to its strong economy and low unemployment, Bild reported.
- Germans Increase Their Foreign Bank Deposits by 47%, FTD Says. German savers increased the amount they have deposited in foreign-based banks by almost half in the past year, Financial Times Deutschland reported in a preview of an article to be published tomorrow, citing its own calculations. In the 12 months from April last year, Germans increased their deposits in non-German banks by 21.6 billion euros ($28 billion) to 67 billion euros, FTD said. German savings banks, or Sparkassen, meanwhile, took in 17.8 billion euros, according to the newspaper. More than 5 billion euros was deposited with Bank of Scotland Plc, close to 2 billion with ABN Amro Bank NV, and just since last autumn, Russia’s VTB Direktbank has received close to 1 billion euros, FTD said.
- Bernanke Tells Senators About Risk From End of Pro-Growth Plans. Federal Reserve Chairman Ben S. Bernanke spoke to a group of senators today about the potential harm to the economy from the expiration of several pro-growth policies, according to senators who attended the meeting. Bernanke discussed the scheduled end of programs including the Bush tax cuts, the payroll tax holiday and extended unemployment benefits, as well as budget cuts that are set to take effect in January of 2013, said Kent Conrad, a North Dakota Democrat. "It's clear to all of us and he stressed that if all of these things occur it could drive us back into a worse recession," said Richard Durbin of Illinois, the chamber's No. 2 Democrat, after the meeting. "The sooner we can resolve these issues, the more likely we are to give confidence to consumers and investors across America."
- JPMorgan(JPM) Default Swaps Climb After $2 Billion Trading Loss. The cost of protecting debt of JPMorgan Chase & Co. from default rose to the highest level in a month after the bank said it lost about $2 billion with positions taken by its chief investment office. Credit-default swaps on New York-based JPMorgan climbed to 118.5 basis points as of 5:42 p.m. in New York, according to prices from data provider CMA, which is owned by CME Group Inc. The contracts were at about 111 basis points before the announcement.
- U.S. Postal Service Cash Projected at Zero in October. The U.S. Postal Service said it lost $3.2 billion in the quarter ended March 31 and will temporarily run out of cash in October, adding urgency to its pleas for Congress to let it make changes including ending Saturday delivery. The service forecast a $9.1 billion loss for the 12 months ending Sept. 30, not counting a required $5.5 billion payment for future retirees' health benefits, Chief Financial Officer Joe Corbett said today on a conference call with reporters.
- Facebook(FB) IPO Overvalued at $96 Billion in Global Poll. Facebook Inc. (FB), seeking as much as $96 billion in its initial public offering next week, is overvalued at that price, according to a Bloomberg investor poll.
- Gilead’s(GILD) Pill Wins U.S. Panel Backing to Prevent HIV. Gilead Sciences Inc. won the backing of an advisory panel for the first approval of a drug to prevent HIV infections in healthy people. The panel of doctors, researchers and patients voted that Truvada, currently marketed to treat those infected with HIV, is safe and effective as a form of prevention in high-risk individuals, including gay men whose partners have the disease. The Food and Drug Administration is expected to decide by June 15 and doesn’t have to follow the panel’s recommendation.
- China's Big Banks Look More Like Paper Tigers. After spending time combing through the financial reports of China’s biggest publicly traded, state- owned banks, I now understand what Jim Chanos, the famous short- seller, means when he keeps saying they are “built on quicksand.” He’s definitely on to something.
- Sony(SNE) Falls to 31-Year Low as Forecast Misses Estimates. Sony Corp. (6758) fell to the lowest level in Tokyo trading since 1980, when the Walkman was new and before it introduced the first compact-disc player, after forecasting profit that lagged behind analyst estimates. Sony tumbled as much as 5.8 percent to 1,142 yen, the lowest intraday price since Aug. 14, 1980, and traded at 1,144 yen as of the 12:37 p.m. on the Tokyo Stock Exchange.
- J.P. Morgan's $2 Billion Blunder. A massive trading bet boomeranged on J.P. Morgan Chase JPM +0.25% & Co., leaving the bank with at least $2 billion in trading losses and its chief executive, James Dimon, with a rare black eye following a long run as what some called the "King of Wall Street." The losses stemmed from wagers gone wrong in the bank's Chief Investment Office, which manages risk for the New York company. The Wall Street Journal reported early last month that large positions taken in that office by a trader nicknamed "the London whale" had roiled a sector of the debt markets.
- J.P. Morgan’s(JPM) London Whale Drowns Bank Stocks.
- Costly Liabilities Lurk for Gas Giant. Embattled Chesapeake Energy Corp. has saddled itself with about $1.4 billion of previously unreported liabilities over the next decade through off-balance-sheet financial deals. Most of these costs will hit this year and next, at a time when the company needs to raise substantial cash to cover operating expenses and its move into the more lucrative oil business.
- Dish Network(DISH) Offers DVR That Removes Ads. Dish Network Corp. released a feature on its digital video recorder Thursday that automatically removes commercials from shows aired by major broadcast networks, threatening to seriously undercut billions of dollars in broadcast television advertising.
- With French Election Over, Unions Fear Layoffs. As presidential rivals debated the roots of unemployment during the recent campaign, many companies held off on announcing job cuts to avoid inflaming an already fraught political issue. But now that voters have chosen Socialist François Hollande over center-right President Nicolas Sarkozy to be their next president starting on Tuesday, labor unions say many large French companies are preparing to announce large layoffs in the weeks and months ahead.
- Google(GOOG) Preps for Possible FTC Fight. Amid signs the Federal Trade Commission is ratcheting up its investigation of Google Inc., the search giant is returning fire by stepping up a public relations campaign to make the case that its activities don't violate antitrust law.
- Chesapeake(CHK) Flies in Front of Fractional-Jet Set. Chesapeake Energy Corp., which came under fire this week in a shareholder lawsuit over the cost of personal travel aboard company jets by executives, is by far the largest single owner of fractional aircraft shares in the U.S., according to industry consultants and databases.
- NY Fed: ECB Taps $532M From Dollar Swap Facility In May 9 Week. The European Central Bank borrowed new dollars from the Federal Reserve during the week ended May 9, but also allowed a greater amount of prior loans to roll off, the Federal Reserve Bank of New York reported Thursday.
- Strassel: Trolling for Dirt on the President's List. First a Romney supporter was named on an Obama campaign website. That was followed by the slimy trolling into a citizen's private life. Here's what happens when the president of the United States publicly targets a private citizen for the crime of supporting his opponent.
- Now India Is Getting Involved In The China-Philippines Territorial Conflict.
- UH OH: Facebook IPO Seeing "Weak Demand".
- FUKUYAMA: The Chinese Elite Ousted Bo Xilai As They Were Genuinely Scared He Would Become The Next Mao.
- Is JPMorgan(JPM) Staring at Another $3 Billion Loss? (graphs)
- The "World's Largest Prop Trading Desk" Just Went Bust.
- Japan Will Follow Europe With a Debt Crisis: Kyle Bass. Japan is about to join Europe in the debt crisis ranks, with the two regions offering the best opportunities for investors to bet against, hedge fund manager Kyle Bass said. While the world's attention has been focused on sovereign debt issues in Greece and elsewhere, Japan will emerge as a problem area as well as the European developments accelerate, Bass told attendees at the Skybridge Alternatives, or SALT, conference. "Greece will circle the drain and be ungovernable in the next 30 to 60 days," said Bass, founder of Heyman Capital and famous for presciently shorting subprime mortgage bonds before the industry collapsed. "Japan is in the crosshairs of the market...I've never seen more mispriced optionality in my entire life." The Bank of Japan, the nation's equivalent of the U.S. Federal Reserve, is effectively monetizing the national debt by buying up 50 trillion yen-worth of Japanese Government Bonds, commonly referred to as JGBs in the marketplace, Bass said.
- Daniel Stern: Volcker Rule Driving Talent to Hedge Funds. The Volcker Rule is driving talented traders to leave large, well-known Wall Street investment banks for hedge funds, Reservoir Capital founder Daniel Stern said at the Skybridge Alternatives (aka SALT) investor summit Wednesday. "I get a call a day from head hunters looking to place talent," he said.
- China Inflation Eases in April, Uptick in Output Seen.
LA Times:
- Video Game Sales Plunge 42% in April. Video game sales took a nose dive in April, plunging a stomach-churning 42% compared with a year earlier as companies cranked out fewer releases than in April 2011. Retailers rang up just $292.1 million in game sales last month, down from $503.2 million a year earlier, according to the NPD Group, a market research firm.
Rasmussen Reports:
- Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows Mitt Romney earning 49% of the vote and President Obama attracting 45% support. Three percent (3%) would vote for a third party candidate, while another two percent (2%) are undecided.
Reuters:
- Broker LPL venturing into little-loved mass market. LPL Investment Holdings , the largest U.S. independent brokerage, said it will launch an investment advisory business it hopes will capture some of wealth spread out among millions of middle class Americans. LPL's new venture is in the early stages of development, but the Boston-based company says it will hire and train a network of self-employed advisers to offer investment advice to mass market consumers, defined by Cerulli Associates as those with less than $100,000 to invest.
- India Drugs Inquiry Could Prompt New U.S. Scrutiny. Global drugmakers could face new U.S. scrutiny after a report from lawmakers in India alleged abuses in that country's drug approval process, lawyers familiar with such investigations said.
- Nuance(NUAN) quarterly profit beats estimates. Speech recognition software maker Nuance Communications Inc's second-quarter profit beat analysts' estimates on higher demand for its products across all segments.
- Nordstrom(JWN) takes hit on e-commerce expenses. Retailer Nordstrom Inc reported a quarterly profit below Wall Street's expectations after pouring tens of millions of dollars into its e-commerce business, and said it would spend more on that during the rest of the year than previously estimated.
- Moody's Issues Capital Warning to Global Banks. Moody’s has warned that the tendency of global banks to avoid new capital requirement rules and load up on debt will continue to put pressure on their creditworthiness. The credit rating agency announced it was placing 17 banks on review for a downgrade earlier this year, citing “vulnerabilities” in the companies’ vast and volatile capital markets businesses.
- Warnings of Civil Unrest in Venezuela. Politicians across the spectrum in Venezuela are trading dire predictions of impending violence in the vacuum left by uncertainty about the health of President Hugo Chávez. The opposition has warned of plans to postpone or even cancel elections due in October because of speculation that the socialist leader’s cancer will prevent him from running.
- It's Too Late for Germany to Save the Euro. Despite belated gestures from Berlin, the single currency cannot survive if and when Greece leaves it.
- China Investment Growth Faces Slowdown. China's manufacturing investment growth in the future may not maintain a 24% rate recorded in the first quarter because of uncertainties in exports, citing Zhang Liqun, a researcher at the Development Research Center of the State Council.
- None of note
- Asian equity indices are -1.25% to -.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 181.0 +1.5 basis points.
- Asia Pacific Sovereign CDS Index 145.50 +1.75 basis points.
- FTSE-100 futures -.70%.
- S&P 500 futures -.80%.
- NASDAQ 100 futures -.56%.
Earnings of Note
Company/Estimate
- (NVDA)/.15
8:30 am EST
- The Producer Price Index for April is estimated unch. versus unch. in March.
- The PPI Ex Food & Energy for April is estimated to rise +.2% versus a +.3% gain in March.
9:55 am EST
- Preliminary Univ. of Mich. Consumer Confidence for May is estimated to fall to 76.0 versus 76.4 in April.
Upcoming Splits
- (CIG) 5-for-4
Other Potential Market Movers
- The Fed's Fisher speaking and the (ADVS) Investor Day could also impact trading today.
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